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[SHANGHAI] The China Securities and Regulatory Commmission (CSRC) said it is investigating share dumping incidents on Monday, when Chinese markets suffered their worst single-day plunge in more than 8 years. "The CSRC has already set up an inspection and enforcement force, specifically focused on examining clues about concentrated dumping of shares on the 27th," CSRC spokesman Zhang Xiaojun was quoted as saying in a question-and-answer transcript posted on its website on Tuesday.

Chinese markets had tumbled some 30 per cent from mid-June to early July, but rebounded by 25 per cent in recent weeks after the government unleashed an unprecedented series of support measures to avoid a full-blown market crash.

But the government-engineered recovery came unglued on Monday, when major indexes lost over 8.5 per cent in a sharp afternoon plunge.

They fell again on Tuesday despite commitments from the CSRC to buy more shares and threats to severely punish "malicious short sellers".

Beijing has struggled to restore confidence after the massive June sell-off, which shaved around US$4 trillion off the country's net market capitalisation at one point.

Many in the domestic media have presented conspiracy theories blaming short sellers - in particular foreign governments and institutional investors - for deliberately trying to crush China's exuberant stock market rally, which saw the Shanghai Composite Index gain nearly 150 per cent over 12 months at its peak even as the economy slowed and corporate profits weakened.

Regulators have tried to prevent people from using the futures market to profit from further slides and force major stakeholders to stay in the market, but economists have warned that such moves are unlikely to produce sustained benefits given valuations are still quite high.